Gerald Guterman, whose firm bought more than 12,000 New York-area rental apartments and turned them into condos and co-ops in the 1970s and 1980s, is now looking to lead one of the biggest conversions in U.S. history.
Guterman’s new firm, Condo Recovery LLC, has prepared a plan for a co-op conversion of Manhattan’s Stuyvesant Town-Peter Cooper Village, the 80-acre rental complex at the center of a dispute between creditors after the owner defaulted on a $3 billion mortgage. The developer discussed the proposal with CW Capital Asset Management LLC, the representative for holders of the senior debt, and plans an offer to buy the note before a planned foreclosure, he said in an interview.
“We’ve made our intentions known in a very quiet, real way,” said Guterman, 64, who said he met with representatives of the more than 25,000 tenants who live at the complex.
Condo Recovery’s plan to make an offer is dependent on CW Capital prevailing in a lawsuit against junior lenders who are trying to seize control of Manhattan’s biggest residential enclave. Bill Ackman’s Pershing Square Capital Management LP and Winthrop Realty Trust want to lead their own conversion after buying $300 million of junior debt for 15 cents on the dollar.
Stuyvesant Town and Peter Cooper Village, located between 14th and 23rd Streets alongside the East River, likely will attract other bidders. Billionaire Wilbur Ross is among investors who have expressed interest in the property.
Guterman co-founded Condo Recovery with New York investment firm Westwood Capital LLC and appraiser Jonathan Miller, who has been offering valuations on what market-rate co-ops sell for in the neighborhood. The company was founded last year to buy unsuccessful condominium projects and convert them to rentals, and to purchase large properties in distress.
Guterman said he began preparing a plan for a Stuyvesant Town conversion before the owner, Tishman Speyer Properties LP, defaulted in January.
“I’ve been looking at this almost a year,” Guterman said. “I’ve got guys who don’t do anything else.”
Elizabeth Orcutt, a CW Capital spokeswoman, said she couldn’t immediately comment. Ryan Toohey, a spokesman for the Pershing-Winthrop venture, declined to comment. Councilman Daniel Garodnick, a resident of Peter Cooper Village and a leader in tenants’ effort to find a partner for an eventual co-op conversion, declined to comment through spokesman Dan Pasquini.
A co-op conversion of the complex would be the second-largest by unit after the conversion of Co-Op City in the Bronx, Guterman said. It would be the biggest by dollar value.
50% of Tenants
For a co-op plan to be financially successful, more than 50 percent of existing tenants must agree to buy their units, Guterman said. To offer that enticement, the monthly cost of owning their unit -- including maintenance fees and mortgage payments -- must be no higher than the current monthly rent, he said. A co-op sponsor must also line up a lender that will guarantee a mortgage to all tenants who seek one.
The co-op pricing in Condo Recovery’s plan is based on stabilized rent rates in 2006, when Tishman and BlackRock Inc. bought the property for $5.4 billion with plans to boost regulated prices to market levels. That effort was thwarted after a legal victory for tenants who claimed some rent increases were illegal.
Rent Versus Buy
The firm’s proposal assumes all current tenants in the more than 11,000 units are rent-stabilized, and calculates their current rates as if they had been stabilized from 2006. That will be the basis for the prices at which residents can buy their unit.
“You have to make the rent versus buy decision an easy one,” Miller said.
Beginning a co-op conversion would requires a legal offering plan filed at the state Attorney General’s office that includes proposed apartment prices, three years of property audits, as well as maintenance and engineering reports on each of the 110 buildings on the complex.
“It’s going to be at least five books and each book is going to be at least two inches thick, delivered to each of 11,000 residents,” Guterman said.
Guterman’s past co-op conversions include the Upper East Side’s 50 Sutton Place South, the Vermeer on Seventh Avenue in Chelsea and the John Adams on West 12th Street in Greenwich Village, he said.
Pershing and Winthrop are also reaching out to tenants. Their venture sent a letter to residents on Sept. 12 pledging to give them “full veto rights” on all major decisions, as well as a say in the pricing of co-op units.
“Working together, we believe that we will be able to effectuate an affordable non-eviction conversion while protecting the long term affordability of the property,” they said in the letter.
Senior lenders, represented by CW, claim the venture may not move to take over the complex until the mortgage holders are paid the $3.66 billion they are owed. State Supreme Court Justice Richard Lowe said on Sept. 2 that he plans to rule this month on who can foreclose.
Condo Recovery will make an offer if CW prevails, said Daniel Alpert, managing partner of Westwood Capital.
“Once we know who we’re talking to and we know who’s in control, we’d like to come in and make a sensible offer,” Alpert said.
Guterman said the plan assumes Ackman’s venture will be unsuccessful in its takeover attempt.
“In my opinion the majority of the statements in the lawsuit have little basis in fact,” Guterman said. “There’s no question that CW is going to get its $3 billion dollars.”
His firm’s proposal offers to pay a “significant portion” of that to CW upfront and the rest over time, as apartment sales at the complex unlock additional value. The only way to pay senior mortgage lenders in full is by doing a co-op conversion, Guterman said.
“Someone’s paying that price. It has to be paid,” he said. “You may agree on the price, you work the terms out -- some you pay up front, some you pay months down the road.”